Reduce Investment Risk with Market-Neutral Strategies

Description

Market-neutral investment strategies are not about investing in financial products that are safe from the fluctuations affecting the market. A market-neutral strategy is about creating a hedge against the factors affecting the market by adopting different positions. 

This approach is focused on generating absolute returns on the long-term instead of relative returns or immediate profits. Using market-neutral investment strategies is ideal for investors who have some experience with stock picking or who can benefit from the recommendations of a qualified investment advisor or fund manager. 

There are a few concepts you should be familiar with to gain a better understanding of market-neutral investment strategies: 

1. A long position refers to the purchase of a commodity motivated by the belief it will gain value. 

2. A short position refers to the sale of a commodity motivated by the belief it will lose value. 

3. A market-neutral investment involves a long and a short position so that gains and losses can offset each other regardless of how the market moves.